We provide an updated evaluation of the value of various measures of core inflation that could be used in the conduct of monetary policy. We find that the Bank of Canada’s current preferred measures of core inflation—CPI-trim, CPI-median and CPI-common—continue to outperform alternative core measures across a range of criteria.
Explaining the Interplay Between Merchant Acceptance and Consumer Adoption in Two-Sided Markets for Payment MethodsRecent consumer and merchant surveys show a decrease in the use of cash at the point of sale. Increasingly, consumers and merchants have access to a growing array of payment innovations as substitutes for cash.
Financial frictions affect how much consumers spend on durable and non-durable goods. Borrowers can face both loan-to-value (LTV) constraints and payment-to-income (PTI) constraints.
Bank resolution is costly. In the United States, the Federal Deposit Insurance Corporation (FDIC) typically resolves failing banks by auction.
Lending to business is central to economic growth because it supports investment by firms. Knowing how market participants view risk in the financial system can give the Bank of Canada information about future growth in business loans. In this note, we look at three market-based risk measures and find that sudden increases in the perception of risk in the Canadian banking system are associated with a weaker outlook for business loans and real gross domestic product.
Flight from Safety: How a Change to the Deposit Insurance Limit Affects Households’ Portfolio AllocationDeposit insurance protects depositors from failing banks, thus making insured deposits risk-free. When a deposit insurance limit is increased, some deposits that previously were uninsured become insured, thereby increasing the share of risk-free assets in households’ portfolios. This increase cannot simply be undone by households, because to invest in uninsured deposits, a household must first invest in insured deposits up to the limit. This basic insight is the starting point of the analysis in this paper.
We investigate the extent to which excess supply (demand) in labour markets contributes to a lower (higher) growth rate of average nominal wages for workers. Using panel methods on data from 10 advanced economies for 1992–2018, we produce reduced-form estimates of a wage Phillips curve specification that is consistent with a New Keynesian framework.
We introduce a new proxy for measuring corporate bond liquidity, using the price of exchange-traded funds (ETFs) that hold corporate bonds. It measures the average liquidity across 900 corporate bonds every day, many more than other proxies used in previous Bank of Canada analysis. The new proxy nonetheless paints a very similar picture of liquidity conditions and confirms the previous findings: the liquidity of bonds has generally improved since 2010.
Cash use for payments has been steadily decreasing in many countries, including Canada and Sweden. This might suggest an evolution toward a cashless society. But in Canada, cash in circulation relative to GDP has been stable for decades and has even increased in recent years. By contrast, the cash-to-GDP ratio in Sweden has been falling steadily. What has caused this difference? Are there lessons to be learned from comparing the Canadian and Swedish experiences?